1. What is trademark licensing?
Definition: In Trademark licensing, a Trademark owner (Licensor) grants permission to another (Licensee) to use that trademark on mutually agreed terms and conditions.
Quality control in Trademark licensing. Trademark licensing was considered impossible at one time given that one of the functions of a trademark was to indicate source. The fact that a good or service is produced or delivered by a licensee (a person authorised by the owner to use the trademark) in essence means that the good or service is emanating from a source other than the owner. As such, it would amount to a false or deceptive representation to the consumer as to the true source of the products involved.
However, Trademark licensing became acceptable where the licensor (the owner of the trademark) remained in control of the nature and quality of the goods or services sold in association with the trademark. Quality control is, therefore, the essence of Trademark licensing, providing the means for ensuring that the licensee’s use is consistent with the licensor’s interest in the trademark and at the same time ensuring that the consumer will get essentially the same quality good or service no matter where the trademarked good is purchased or the service is experienced.
2. Different ways of licensing Trademarks
Franchising is a specialised licence where a franchisee is allowed by the franchisor in return for a fee to use a particular business model and is licensed a bundle of IP rights, notably, Trademarks and supported by training, technical support and mentoring. When a business model is successful and replicable at other locations, permitting interested third parties to set up independent businesses based on a proven business model, along with its attendant trademarks, know-how and other intellectual property rights (such as designs, patents and copyright), has proven to be an enormously successful and rapidly growing trend. The key to franchising is the licensing of intellectual property rights, particularly trademarks.
The licensing of Trademarks, designs, artworks as well as fictional characters (protected by these rights) and real personalities are broadly referred to as merchandising.
Allowing manufacturers of ordinary consumer goods such as plates, mugs, towels, caps, clothes, to name a few, to apply on their products the trademark of another immediately adds appeal to an otherwise commonplace object and a means of distinguishing themselves in the market place. Example:
Trademarks of popular companies, sports teams, universities have huge consumer recognition and appeal, allowing for brisk sales at a premium price.
Through a Trademark licensing agreement, a company may team up with another who may be provided with the right to apply the trademark on a new product. Example: Monaco Coach, a manufacturer of luxury recreational vehicles entered into a licensing agreement with Dodge, a manufacturer of trucks, to use the Dodge trademark and logo on their trailers. By this agreement Dodge successfully extended their product (trucks) into (trailers).
Two or more reputed Trademarks, not necessarily with the same level of reputation may join together in one product creating a new appeal to the same clientele or break into a new market. Example: Lexus, the luxury motor car of Toyota and Coach reputed for its high quality leather accessories joined together to produce Lexus Coach Edition which is the luxury motor car Lexus with the interior finishing in coach leather products.
Component or ingredient branding
A product may license the right to use the Trademark of an ingredient. Using the Trademark of that ingredient in the packaging, advertising or on the host product itself influences consumers towards that product. The reputation of the Trademark of the ingredient lends value and appeal to the host product.
- PC computers with Intel Inside
- Stereos with Dolby noise reduction
Products that comply with a certain technical or other standard, which adds value to its product and, therefore, customer appeal can license the right to use the Trademark of the certifying entity.
There may be Government standards setting bodies, quality control institutions and testing organisations, which may, when a particular product satisfies the standard, quality or other requirement, certify that that product meets that standard, quality or requirement in question. Such information is conveyed to the customer through the use of a particular logo or mark belonging to that approving institution and licensed for such use.
3. Business benefits of a Trademark licence
Additional revenue stream.
An owner of the Trademark can license the use of the mark to as many users or licensees as he/she wishes and it will creating an additional revenue stream by each such user. Territorial expansion.
Allowing a company in a different country or region to manufacture goods or provide services to which the right to apply a company’s Trademark is granted through a Trademark license agreement allows a company to expand into that territory. Benefit from another’s manufacturing, distributing, sales or marketing capacity. Through Trademark licensing a company may team up with another partner to benefit from that others manufacturing, distributing, sales or marketing capacity, that is, without having to invest in developing such capacity within its own establishment.
New channels of distribution or segmenting the market
Through licensing of marks a company may enter a new channel of distribution that it had hitherto not used or enter new markets in the same geographical area (for example, the youth market, the urban, the elderly or wherever else) so that the mark could have a new or different appeal.
Licensing activity is now moving beyond the traditional style of lending a logo to truly partnering so as to give life and vitality to the core business of a company. When a charcoal manufacturer and a grill manufacturer teamed up to produce the perfect grill for charcoal grilling using the mark of the charcoal manufacturer it was not simply licensing the use of a mark but jointly developing a product which was “win-win” for both of the companies.
Converting an infringer into an ally
Where the mark of a company is being infringed by another, running the risk of diluting the brand image and compromising the reputation of the company it may be an option to convince the infringer to obtain a licence for the use of the mark. Increased consumer recognition and advertising. For many companies licensing of their marks is less about revenue and more about increasing customer recognition.
The more the mark is used the greater the recognition of the brand. In addition, partnering through licensing creates efficiencies. Common costs may be shared, particularly advertising and promotion costs. In the next write up, the writer will explain a Trademark Licensing Agreement.
Aleck Ncube is an Intellectual Property Scholar. He can be contacted on [email protected] or follow me on Twitter: @aleckncube